Primary

Pensions and budgets, and cuts. (Oh my).

On the heels of all the CRC goings-on down in Salem (and in various council chambers in Vancouver and Oregon City), TriMet yesterday tossed a little gasoline in the fire with some dire predictions for transit levels a decade hence. While its outlook for FY14 is essentially flat–no service restorations, no further cuts, depending on how things go; it made the claim that unless further “contract reform” were to take place, it might find itself in the position of only being able to offer 30% of the service hours that are currently offered, in 2025.

Contract reform, of course, being a nice way of saying “pay and benefit cuts for union personnel”.

TriMet also noted that without additional funding, no MAX expansions beyond Portland-Milwaukie are likely any time soon. How an expansion of the Yellow Line if and when the CRC is built would be affected is unclear–though most of the new service would be in C-TRAN territory, and the expectation is that such service would be funded by C-TRAN (a prospect which is not greeted warmly by many Clark County residents).

This claim has gotten quite a bit of pushback. ATU 757 now has a new website to contest the agency’s PR offensive (if nothing else, it’s good to see the union engaging in a little PR of their own; something that was missing under Jonathan Hunt’s tenure as union pres). MAX FAQs reprinted a blistering critique of the agency; Al continues his criticism unabated, and OPAL is skeptical (Facebook page). Cascade Policy Institute, which has been making similar claims for years now, has yet to chime in on the day’s events, but we expect their indic?v? tibi sic any time now.

Ignoring the particulars of TriMet, the “pension crisis” is a real problem. According to estimates, the total of unfunded state and local pension liabilities in the US is nearly $2 trillion. This doesn’t include Social Security, Medicare, or private-sector pensions.

A lot of this is driven by a combination of health care costs, Baby Boomer retirements, shrinking tax bases, boondoggles, and financially-unwise actuarial commitments; but many public agencies have long not bothered to fund pension debt, instead paying it out on as a pay-as-you-go basis. In some cases, generous pension were awarded to public employees in lieu of current pay/benefit increases–a political win-win in that employees’ effective compensation increases, and administrators don’t have to raise taxes or cut services (at the time) to cover it. TriMet’s issues are, in many ways, not unique. The City of Portland has $3.3 billion in unfunded pension obligations–a figure that dwarfs TriMet’s deficit, though Portland has a bigger tax base to draw from. PERS has been a drain on local government coffers for quite a while, as many retirees are collecting generous benefits awarded during the go-go 1990s, when the fund was making guarantees of 8% annual returns and such.

Whether these benefits are deserved or not is largely irrelevant, as is the question of whether or not current taxpayers should be morally on the hook for debts incurred by prior generations. They represent contractual obligations of the agencies in question–and under current law, the only way for agencies to get out of them is via municipal bankruptcy. (Some cities have gone through Chapter 9–a proceeding where retirees generally do get to take a haircut, as bondholders are generally given first priority). And communities that have large mountains of such debt may face the prospect of a public services death spiral that may accelerate such an outcome–as voters decide to either move to lower-tax locales, and/or refuse to vote for taxes on the grounds that such taxes are no longer paying for public services. The Beaverton School District, for instance, is seeing its PERS payments skyrocket–but hasn’t been able to pass an operating levy in recent years–many taxpayers (including many parents with children in the district) object to a higher tax bill without corresponding improvements in service.

In some ways, many local governments will have increasing difficulty without intervention (good or bad) from Uncle Sam. Such intervention could take many forms, including a) further health care reform (particularly reforms that drive down the cost of medical care, and which replace various Cadillac employer plans, something that Obamacare did not do); b) a federal bailout of distressed local governments (Uncle Sam can raise taxes uniformly, and can print money); c) giving retirees a haircut via legislative act (while the states cannot impair contracts via legislation, Congress can). At the present time, there is no political consensus for any of these; OTOH there have been more whispers of inter-generational sniping in national politics–it wouldn’t surprise me if in a few years, more and more young political aspirants start demagoguing about transfers of wealth to retirees. Such commentary is already not uncommon on the topic of Social Security, after all.

…but how bad is it really for TriMet?

Back to TriMet. A big problem which the agency has had, for the past few years, is a lack of transparency–which makes it easier for the agency’s critics to doubt its official line, or even accuse it of rigging the numbers. It won at the ERB last year by essentially pleading poverty, and claiming that the ATU’s offer would devastate it (and its riders); it could be trying to build a public case for another round of cuts in the next contract. Or, there could really be a wolf among the sheep.

Another question for the agency is–how long has it been concerned about the issue? A cynical person might note that TriMet downplayed its financial issues until PMLR funding was secure and construction underway–a good question would be what has changed between 2009 (when the Great Recession was underway, and the financial meltdown of 2008 fresh on everyone’s mind) and now. (Other than the occupant of the general manager’s chair; four years ago, Neil McFarlane had yet to be promoted).

Another important line of inquiry: what forecasts, economic and population, drive the model? Depending on how one thinks the economy will do in the next ten years, what will happen to the metro area population, what will happen to the price of gas, and how will full implementation of Obamacare affect healthcare costs, may have a big impact on TriMet’s finances. Obviously, nobody can predict the future with any certainty, but some of the assumptions I have to question–particularly the assumption that healthcare costs will continue to rise exponentially. Were that to be the case, I would expect that at some point in the near future a political crisis would result, with harsher measures than Obamacare being taken, before the healthcare sector is permitted to swallow the entire economy.

And of course, there is the equity question: Assuming this is all true, who should bear the brunt of this? Taxpayers? Riders? Current operations workers (whom are being targeted with benefit cuts)? Former workers (who, as noted above, are largely untouchable absent a bankruptcy or Federal intervention)? Management and non-operations staff? Vendors, suppliers, and contractors? Right now, most of the cuts have been borne by riders–who are experiencing worse service and higher fares–and by current employees (union and non-union). TriMet has limited power to raise taxes to offset increasing costs.

A few other questions, for thought:

If some community were to withdraw from TriMet and form their own transit district (like SMART did)–do they get to start fresh with a clean balance sheet? Or would the be required to shoulder a pro-rated share of TriMet’s pension obligations? And pursuing that line of questioning to its conclusion–could the agency be whittled down to nothing but a bag of IOUs?

I wonder who the audience is, for TriMet’s remark that future capital projects might be imperilled. For many of the agency’s critics, who view such projects (rail in particular) as pork-barrel politics rather than sound expansion, this is would be viewed as a feature and not a bug; I doubt that very many riders or taxpayers place a high priority on future MAX expansion, particularly during an age of relative austerity. That this was explicitly mentioned is a thing that makes you go hmmmm….

This might be the start of a (long overdue) conversation on just what TriMet’s purpose really is, and what goals it should be focusing on. Putting accusations of patronage aside–TriMet is tasked (as part of overall regional strategy) with various things such as reducing greenhouse gasses, social service to various disadvantaged communities (many of whom are expensive to serve), assisting with land use tranformation, and other goals only tangentially related to moving people around the city. While many of these goals are laudible; should TriMet and its limited operational base be serving so many masters, or should deployment of services for reasons other than efficient transport be funded elsewhere?

About EngineerScotty

30 Responses to Pensions and budgets, and cuts. (Oh my).

They want us to fall on our swords in an act a Seppuku. Well you know what I say to that. Mcfarlane and all the overpaid technocrats need to fall on their swords first:

And outside experts said that TriMet’s problems are much more complex than its union contract.

Don Pickrell, chief economist at the U.S. Department of Transportation’s Volpe Center in Cambridge, Mass., said TriMet is typical of many of the country’s transit agencies.
He said that like others, it is stuck with seemingly intractable budget problems, even as ridership grows and it takes federal grant money for new rail lines it doesn’t have the money to operate.

Trying to get the ignorant masses to understand this is a task unlikely to succeed in a country that is filled with a population that is against itself.

In Greece, Spain, Italy the people rose up together and to this day they fight the money masters.

In the good ole US of A the population tears itself down.

No police needed here.

Americans will get what they deserve. They think it will end with the destruction of the unions.

The ACA didn’t ban cadillac plans, and I think it’s intensely unlikely any health care reform including such a ban would have passed. On a practical level if we’re unwilling to tell unions their healthcare plans are too rich how could we expect Uncle Sam to make that call from 2,800 miles away?

The ACA did include a tax on those plans, with a 40% surcharge imposed on premiums exceeding a specified threshold beginning in 2018. That threshold grows with general inflation, so if medical costs did grow at 9.5% Trimet would be deep in the tax. I’d ballpark that liability at $20,000 per employee in 2030 based on Trimet’s assumptions.

Of course the ACA didn’t ban Cadillac plans. OTOH, a universal single-payer system, ala Medicare but for everybody, likely would ban (or greatly restrict) private health insurance (perhaps supplemental plans might be available). One of the political difficulties of doing that–beyond the opposition of the healthcare industry, which is loath to see the creation of a government monopsony that can drive prices down–is that many people have good quality plans that they like, and would be annoyed were their premium plans eradicated and replaced with a common standard of care.

And speaking of Cadillac plan taxes–would TriMet be on the hook for these, or would employees who receive health care of this sort be responsible for the Cadillac tax? (I’m mainly wondering about retirees–I would expect future CBAs covering current staff to address this explicitly).

The scope of the discussion needs to be expanded to include the tax revenue side of the equation. As long as the debate is fare hikes/service cuts vs wage/benefit cuts for employees, nobody here is going to be happy.

(And I doubt there’s enough waste, fraud, and abuse in the system to make much of a difference other than at the margins).

This is an act of propaganda, with TriMet trying to terrify its riders into submission and trying to force them to fight against the union, causing deliberate tension between drivers and riders. Yet, they’ve shot themselves in their foot by telling the riders that their only plans to cut things are ‘almost every single non frequent bus route in the entire system’ and raise fares on everyone to drastic amounts. They are telling the riders that they are expendable. They did not mention considering any other method of cuts other than punishing its riders or its drivers for the sake of the other. After all, higher ups like McFarlane earn more money in five years than most families will see in their entire lives. They don’t seem to want to give up anything for themselves, instead stretching the truth or outright lying to pin the blame on the union when the union has already suffered loss in pension and health care which TriMet has conveniently failed to mention. They also refuse to even consider tampering with capital budgets except for not building anything after PMLR, while still going all out on it (a Cadillac rail plan, anyone?)

People are going on and on about how the union has Cadillac benefits (which they don’t, anymore) and how this is one of the most Cadillac Transit systems of the nation (which, as any struggling bus rider will tell you they most certainly don’t) but no one mentions the actual high class Cadillac stuff- rail projects, rail stations, upper management mammoth salaries, Cadillac bureaucratic jobs for hiring, Hansen’s Cadillac pension and Cadillac sized capital project budget of which bus operation is a dime next to a dollar.

It’s a sad state we’re in when the working class, those who toil and struggle for a paycheck for their families, is labeled as entitled and spoiled and the upper class, who give themselves a game show winning a year, are labeled as the struggling.

A big problem–and this is one that goes well beyond TriMet HQ–is that there is plenty of money available for big-ticket capital projects, whatever their merits, but none for operations. While one might decry $1.5B for MLR (though I wouldn’t characterize Milwaukie as a “cow town”), were the project to have been mothballed in the early stages, who thinks that the $1.5B would have been made available for operations instead?

The answer, and we all know it, is that it likely wouldn’t have been–any more than the Oregon Legislature or Uncle Sam would have handed out “free” money to pay for school budget shortfalls, or to buttress local police forces, or any other things competing for tax dollars on a continual basis.

This, perhaps, is a problem that needs fixing: Why shouldn’t the higher levels of government fund operations? Prior to the Reagan years, much local government funding came from Uncle Sam, and federal taxes were correspondingly higher. Nowadays, it’s federal policy not to. Part of this is because capital costs are generally “one-shot” expenses rather than continual commitments; but a big part of the issue seems to be to ensure that the “wrong” folks don’t get their hands on the federal largesse. Specifically, there is a major concern that operational subsidies will pay for bigger wages and better benefits for transit workers as opposed to better service–but there isn’t really any corresponding concern about capital subsidies jacking up wages/benefits in the construction industry–which has happened, apparently, if you compare the cost of MLR with earlier MAX lines of similar scope. Indeed, boosting wages and increasing jobs in the construction sector and related trades is widely touted as “economic development”, whereas doing so on the service side gets regarded as government waste. And likewise for many other functions of government.

Like I said before, Al: ATU 757 needs better lobbyists, and/or a few deep-pocketed capitalists to find common cause with. I’m curious–do bus outsourcing firms like First Transit (which TriMet contracts with to operate the Lift paratransit service) ever do any lobbying to increase funding for such things–or do they stay out of the political fray, and meekly pass the squeeze down to their operators when funding gets cut?

I put 20% of my wages into my 401k, and my company matches an additional 6%. I definitely do not plan to “work until I die”. And guess what? If my company goes bankrupt, it’s still my money. I can take it with me.

Pensions are risky, and that’s the opposite of what you want in a retirement plan.

I put 20% of my wages into my 401k
~~~>The problem with that type of pension is that you are at the mercy of the stock market. The stock market is not exactly a reliable source of investment especially going forward from here.
It right now at artificial highs. Europe is in turmoil and the combined debt of all the various government entities here is in the trillions.

A defined pension plan is immune to those forces. The money masters want your money in their pot, hence the end of defined pensions.

My personal feeling is that we will all experience an economic collapse the likes of which has never been seen before.

When this will happen is unknown but all the factors are in place for it to actually come true.
How long can the money masters maintain the illusion of stability? Who knows.

Any thinking man knows the value of those dollars in your pocket is zilch. The paper dollar has no value.

Of course everybody goes down in an economic collapse.

Trimet ended defined pensions of course in the race to the bottom.

The question is now how fast can Trimet take us to the bottom on health care.
They doing a pretty good job already dragging us down but they want us to go down further.

I’ll make one last comment on this post then let everybody else have the floor.

I never thought I would see the day that having health insurance would be viewed as a bad thing and make people the bad guys.

Its quite a huge victory for the propagandists that they have been able to make us the bad guys.

I’ve always been in awe of the people that control the message. They are absolutely brilliant in how they have manipulated the masses in to thinking exactly what they want them to think.

Having decent health insurance in a public service job makes us the bad guy but building useless rail lines, handing out obscene executive pensions, and maintaining wars without end are acceptable.

How far the mind of the American public has fallen in the 59 years I have been alive on this planet.

From an employer’s point of view- Pensions (defined payout) is hugely risky, but 401(k) style (defined contribution) is much lower risk from their point. The point that you make, Al, that the risk has been shifted to the employee is totally valid, but at least it doesn’t take the whole system down with it when the company plays games with the pension fund.

From the healthcare point of view: At my work (Intel), to lower costs we now have a doctor’s office on-site that I can go to for $10 access fee. My insurance is not billed at all – they are essentially giving away the care for $10 per visit. This is lower cost for me and substantially lower cost for my employer. Has Tri-Met Considered options like this to lower their cost of insurance? Surely they could built an entire healthcare system for the rates they are paying per employee

The risk is your choice. You can invest in bonds, you can invest in foreign companies, you can invest in the stock market. Essentially, you are calling your fellow union employees children, not capable of handling basic finances. You need “daddy” Trimet to take the retirement responsibility for you.

When I considered this worst case scenario I noted that the slimmed down TriMet would basically consist of MAX, Streetcar, WES and Frequent Service bus lines. Did I get that right? The rail piece now carries over 1/3 of all riders; we can expect that to go to 40% with MLR. Of the remaining 60%, 2/3 are carried by FS buslines, so that leaves about 20% of all rides on all those other bus lines that would be cut. Cost per ride on rail (except WES) is the lowest; FS buses are almost all below $2.50. It just may be that operating all those other high cost bus lines with relatively low ridership and high cost per ride due to the high cost of labor just is not sustainable. The service gaps with a slimmed down TriMet could be filled by car sharing, bike sharing, non-profits subcontracting service. And people will look to live within 5 blocks or so of service when they move, change jobs, etc. It might not be the end of the world, just the end of TriMet as we know it.
In Frankfurt, Germany there are a dozen S-bahn lines, 7 U-bahn lines, maybe a dozen streetcar lines and relatively few bus lines. The former are very expensive to build, but more cost effective to operate; the latter are very expensive to operate…as we are learning.
Has someone done an honest comparison of labor costs at TriMet vs. Seattle’s Metro or SF’s Muni, or other systems with comparable ridership, adjusted for cost of living? Are TriMet’s really that far out of bounds? If they are, then we can either tax ourselves more to carry them, get the union to reconsider their benefits or expect less service. Maybe a bit of all three in the end.

I am sorry I cannot eat the crap trimet is dishing out. The union is NOT the source of EVERY SINGLE FINACIAL issue in your agency. That is a lie. The ATU has mentioned one of the heads in trimet is a union buster, and I have only heard of this ongoing assult on employes since Mcfarlane took office. I beieve we have people in charge who make WAY to much money, to be a tri met employee.
Why do we have so few rail supervisors to supervise our growing rail network but a ton of high paid management who do NOTHING?
Why are we having to cut service when ridership is up? ATU doesnt just represent trimet, why isnt C-TRAN and the other agencies that are under similar contracts BEGGING for help?

Tri mets leadership needs to cut the costs because there paying that leadership way too much money, and they blame the average worker for it. It happened in the past in this country, union busting is all they care about right now and they might take the only sustainable transit agency in portlands history down trying to.

Here is a CRAZY SOLUTION. Take all that extra managemnt and fire them, that’ll save ya a million a year. Charge a buck for parking at your park and rides, get rid of those dinosaurs so you can get better gas milage. Bring back noght owl srvice to open up more revenue. Then instead of restoring service take those extra busses hire some part timers and put more line up to 15 minute frequency.

Maybe end the red line downtown on the weekends.

Your problems are solved, oh and don’t let the mayor end free rides for students, that’ll make parents drive kids to school and decrease ridership.

Every thing or almost everything in CRAZY SOLUTION adds costs and does not help revenue. Not much help.
By and large senior management in the public sector earns far less than in the private sector. But surely there is a neutral third party out there who can resolve this kind of charge. Artbitration found for TriMet recently, suggesting their position has merit. Could TriMet go into bankruptcy and turn all this over to a judge to resolve? Private sector entities do this all the time; unions and pensions are usually left hurting. Maybe all this is a plea for the governor to get involved.

Scotty, the excise tax would be paid by Trimet, not employees. I assume for retirees 65 and over Trimet provides supplemental benefits, I doubt they’d hit the applicable thresholds. I think retirees under 65 could pose additional tax liability.

I’ll spare you a debate about single payer, except to observe that negotiating costs down is a lot easier said than done (as this thread demonstrates).

You can see the details of my ballpark calculation here. The $20K figure assumed for simplicity that everyone buys family coverage at the overall average cost. I’ve added a second tab using Al’s 50/50 split between individuals and family coverage, including 50% across the board opting for Kaiser at a substantial discount. Kaiser reduces the cost while accounting for individuals and family separately raises it, in total the cost drops to $18K per employee at 2030.

I admit the 2030 figures on health care costs are implausibly large, such as $140K for family coverage in 2030. That almost certainly won’t happen. But there is a big difference between that not happening because the union took health care costs seriously and worked to reduce them, and that not happening because the union did nothing and Trimet went bankrupt.

Also, it’s also worth playing around with the model using more optimistic assumptions. 9.5% annual growth is high, but 5% long term growth is very plausible. That would generate a total luxury tax burden through 2030 on the order of $60M (assuming I’m reasonable on employee counts). That’s not nothing.

Of course Al I could be totally wrong, tell me where. But if you really think the liability is nothing than you should have no objection to ATU taking responsibility for any luxury taxes incurred, right?